Question

Question 2 On January 1, 2018, Carvel Corp. issued five-year bonds with a face value of $590,000 and a coupon interest rate of 6%, with interest payable semi-annually. (a) Prepare a partial bond amortization table for the first two interest payments assuming that interest is paid on July 1 and January 1 and that the bonds sold when the market interest rate was 5%. (Round answers to o decimal places, e.g. 5,255.) CARVEL CORP. Bond Premium Amortization On January 1, 2018 Interest Payment Interest Expense Premium Amortization Unamortized Premium Semi-annual Interest Periods Bond Carrying Amount Jan. 1/18 July 1/18 Jan. 1/19 Attempts: 0 of 2 used SAVE FOR LATER SUBMIT ANSWER

Answer 1

Answer:

CARVEL CORP.
Bond premium amortization
On January 1,2018
Semi-annual interest periods	Interest payment	Interest expense	Premium amortization	Unamortized premium	Bond Carrying amount
Jan. 1/18				$25,819	$615,819
July 1/18	$17,700	$15,395.48	$2,304.53	$23,514.48	$613,514.48
Jan. 1/19	$17,700	$15,337.86	$2,362.14	$21,152.34	$611,152.34

Interest payment = $590,000 x 3% =$17,700

Interest expense = preceding bond carrying amount x 2.5%

Premium amortization = Interest payment - Interest expense

Unamortized premium = Face value - Bond carrying value

Bond carrying value = Preceding bond carrying value - premium amortized

Calculations:

Interest payment = $590,000 x 6% x 6/12 =$17,700

Present value of interest payments	$154,911
[$17,700 x 8.75206 present value annuity factor (10 years, 2.5%)]
Present value of face value of the bonds	$460,908
[$590,000 x 0.78120 present value factor (10 years, 2.5%)]
Issue price of the bonds	$615,819